Duelling with dragons

The past few years have seen tremendous upheaval in a number of global industries. In 2000, giant Western companies such as Ericsson, Nokia and Nortel Networks ruled the world’s telecommunications-equipped industry.

Now, Chinese companies such as Huawei Technologies and ZTE have risen to the top. In the process they have forced established multinational companies (MNCs) into joint ventures or even out of the market. In the photovoltaic industry of 2005, US, European and Japanese companies accounted for 90% of global production. Today, four of the world’s top five players are based in China.

The fact that leading Multi-National Companies (MNC) and Emerging Market Players (EMPs) in the global chemical business are roughly at a parity in terms of revenues illustrates the advanced stage of social competition in this industry.

The current landscape: The fight for global leadership

As in the automotive supply and construction industries, global demand for chemicals is shifting to emerging markets, which now represents roughly half of the $5tn market worldwide. Major MNCs in chemicals have considerable local production in emerging markets and have known these economies well for decades. However, the balance of power has now shifted: several EMPs – most of them with close ties to national oil companies – have become global leaders. With $60bn in revenues in 2013, China’s Sinopec is larger than Dow Chemicals. Sabic, a $50bn conglomerate based in Saudi Arabia, is bigger than Lyondell Basell Industries, DuPont and Mitsubishi Chemicals. The sheer numbers obscure big differences among market segments, however. As of now, EMPs dominate base chemicals and basic plastics, and incumbent MNCs generally are stronger in specialty chemicals, industrial gases, agrochemicals and fertilizers.

EMPs have also become more aggressive in mergers and acquisitions on a global basis. From 2007 through 2012, the amount that EMPs spent on such acquisitions grew from $7.9bn to $10.6bn. The transaction volumes of MNC acquisitions of emerging market based chemical companies dropped from $4.6bn to $2.8bn during that same period. EMPs are making bigger deals too. The average EMP outbound acquisition, $881mn, was nearly nine times larger than the average outbound MNC deal.

The future landscape: The battle moves to specialty chemicals

Global demand trends are likely to continue to favour EMPs, especially those based in Asia. By 2020, the Asia-Pacific region is projected to account for approximately 53% of global sales of chemicals. The shares of North American and Western Europe are projected to shrink to 21% and 15% respectively by 2020.

It is no surprise then, that if EMPs manage to maintain a certain degree of growth they will soon exceed MNCs in size. Based on our interviews, we also expect EMPs to further expand into specialty chemicals – not only because they are more profitable but also because these companies want a large share of the fast growing local market for such chemicals. China identified new materials as one of the key strategic areas on which to focus in the twelfth five-year plan, for example, meaning that the government will support additional efforts in areas such as specialty materials, advanced polymers, inorganic materials and composites.